According to Bank of America, the case to buy Nvidia is even more compelling. Analyst Vivek Arya, who called Nvidia a top pick, said in a note Tuesday that chip stocks are pricing in a recession, even as they generate better free cash flow margins than with stocks in the broad market index. “While macro factors may enhance stock volatility, we believe a 36% PE multiple contraction at the recent top bottom in the SOX index (versus a 27-year downturn),” Arya wrote. % historically) has reflected a ‘recession’ of ‘medium scale’. “Meanwhile, chip stocks are generating ~23% FCF margin (2x returns on S&P 500 stock) and trading at an attractive 22x CY22 EV/FCF, well below multiples of R1K value stock.” Bank of America has a $270 price target assigned to Nvidia. The implied price target is up nearly 45% from Tuesday’s close. To date, Nvidia stock is down nearly 37%. Additionally, Bank of America believes Nvidia provides services to the most resilient industries, including cloud computing and artificial intelligence, industrial sectors, electric vehicles, and driverless technology. . “Previously, only one end market, such as PCs or smartphones, would drive the semi-finals. Now, there are multiple end markets served by a consortium of chip vendors,” Arya writes. best, offering exclusive products and creating a solid FCF margin,” writes Arya. He added: “Higher valuations and more flexible production/use of outsourced foundries could also help reduce gross margin/FCF periods during the next inevitable downturn.” . Chip stocks could also rally after China lifts some Covid restrictions, which could “re-ignite” investor interest in the sector, Arya said. — Michael Bloom of CNBC contributed to this report.
